Hardship Wrecked: Lawmakers Take Aim at the Hottest Trend in Subverting Rent Control
Dudley's Due Rights: Cornelius Dudley has had it with rent control. (Darrow Montgomery)
Condo conversions are so 2005. These days, District landlords looking to squeeze more cash out of their rent-controlled apartment buildings are turning to a more recessionary tactic: the so-called hardship petition.
Perhaps no one knows this better than Cornelius C. Dudley of Dudley Pro Realty, who ranks among the most prolific at claiming a handicap.
Dudley, 69, a former Navy engineer and self-described “country boy” hailing from North Carolina, has amassed dozens of properties in low-income areas of Northeast and Southeast D.C. over the past three decades. But rent control laws, he says, are preventing him from charging enough to cover his skyrocketing tax and utility bills. The margins on this modest empire are so slim, he says, that he’s been forced to sell off about a quarter of his entire portfolio in order to maintain the rest.
Consider the 50-unit brick housing complex at 1521-1529 28th St. SE in Randle Highlands, which Dudley’s Twepen LLC purchased for $625,000 in 2002, according to property records. The city now values the complex at a whopping $2.6 million and assesses its tax rate accordingly.“The taxes themselves, over the last five years, have gone up 157 percent,” Dudley says. “[City regulators] have allowed rents to go up 15 percent. You can’t support that!”
Last September, Dudley and his team of lawyers and accountants compiled all the bills for the Randle Highlands complex—nearly 2,000 pages worth—into a formal hardship claim, which was then submitted to the Department of Housing and Community Development’s Rental Accomodation Division.
Municipal regulations entitle landlords like Dudley to recover a 12 percent annual return on their investment. That’s more than twice the Dow Jones industrial average’s yearly gains of 5.3 percent over the last century—Dudley describes it as “just compensation.” If rent controls are preventing property owners from reaching that considerable rate of return, the law allows them to petition for an increase.
During an interview at his company’s office on Rhode Island Avenue NE last week, Dudley leafed through his hefty claim on the 28th Street property with a sense of pride. Just compiling the hardship documentation is itself something of a tribulation. It takes weeks to put one together, he says, at an average cost of about $15,000. “One time, I had three people working full time doing nothing but that,” he says. Then it can take the rent administrator more than a year to come back with a verdict.
“I heard one guy say he’d rather let it go to foreclosure rather than get a hardship,” Dudley says. “It’s too time-consuming, too expensive.”
But the payoff is huge: The administrator often grants a 30 to 40 percent hike in rent. And, in the meantime, the landlord can enforce a “conditional rent ceiling adjustment” of however much he requested only 90 days after filing the petition.
In other words, a landlord could ask for the moon—and potentially get it, at least in the short term.
In the last two years, Dudley has filed hardship petitions for about 25 of his buildings. Most tenants either pay the increase or move out. It’s helped his bottom line “tremendously,” he says.
Naturally, tenant advocates view the whole hardship issue a bit differently. “It is a subtle way to turn a property full of low-income tenants into a property full of not-so-low-income tenants,” says Julie Becker, an attorney for the Legal Aid Society, who saw her first hardship case only two years ago and has dealt with about a dozen since. “I’ve never yet had tenants who could afford to pay the conditional rent increase.” Sometimes, it’s the last step in a process that started with the landlord’s attempted sale of a building, or other types of rent-control end-runs, in a persistent offensive that tenants get tired of dealing with, she says.
“We see in these instances where the landlord is trying by hook or by crook, filing a number of petitions, to get them to move out,” adds Joel Cohn, legislative director at the city’s Office of the Tenant Advocate.
Many affordable housing proponents also protest the landlords’ 12-percent-return privilege as excessive. On the backs of low-income tenants, it becomes unsustainable, they argue. “I still have a hard time saying with a straight face that a landlord is guaranteed a 12 percent return on their investment,” says attorney Vytas Vergeer of the social-services group Bread for the City.
Last year, Vergeer saw one of the most eye-popping hardship claims—a requested increase of 217 percent. (The case involved another landlord, not Dudley.) Amid a grueling battle in landlord-tenant court, which is still ongoing, he brought the issue to the offices of Councilmembers Marion Barry and Jim Graham.
In December, Barry introduced legislation. The proposed Rent Increase Amendment Act of 2009 would do away with the controversial conditional rent ceiling adjustment. The 12 percent threshold would remain intact. On April 1, City Council’s Housing and Workforce Development Committee convened a hearing on the matter, setting the scene for a showdown between tenant advocates and lawyers for property owners, who defended the hardship petition as an essential relief mechanism for struggling landlords.
Three tenants of Dudley’s Randle Highlands complex showed up to testify. The hardship king himself was a no-show. (Later, Dudley told Housing Complex he wasn’t even aware of the pending legislation. “They cut the legs out from under me!” he replied when told of the bill.)
Beverly Freeman, a 70-year-old retired nurse who has lived at 1521-1529 28th St. for the past four decades, described a prolonged battle with Dudley, beginning about three years ago when the landlord had attempted to sell the building. In 2008, she noted, he asked tenants to temporarily vacate the building in order to remove lead-based paint, which they interpreted as attempt to get them to leave. “We saw the handwriting on the wall,” Freeman said. “Then he came up with the hardship.”
Last month, the rent administrator granted Dudley a 37 percent increase, scheduled to go into effect on May 3. But Dudley told Housing Complex he will cap rent hikes at no more than 25 percent.
Tenants are appealing the ruling. To be eligible for a hardship petition, the building must be in “substantial compliance” with housing code. So, to protest the claim, the tenants association, represented by attorney and D.C. Shadow Senator Paul Strauss, put together a photo album filled with snapshots of cracked floors, moldy walls, rodents and roaches. Earlier this year, they called on the Department of Consumer and Regulatory Affairs to inspect the building, which ultimately issued several code violations, from vermin to rotted window frames.
Dudley dismisses the tenants’ complaints about conditions as dishonest. “If you listen to them, they’ll say the building’s about to fall down,” he says. “But, if I’ve got a building that’s about to fall down, I’m not going to live there 30 years. I’m going to go someplace else.”
The current rent might just be too good to budge. Dudley pointed to one tenant paying only $400 per month for a one bedroom unit within the complex.
“Yes, we are asking for a substantial increase,” Dudley goes on, “but, on the other hand, we’ve got Washington Gas, WASA, and the electric people saying, ‘We’re going to close your building down! We’re going to put it in receivership because you can’t pay your bills.’” (Dudley says he’s a bit behind on his bills but is paying just enough to keep the lights on.)
Now, he’s worried about a possible rent strike tying up his remaining cash flow. “This is what always happens,” he says. “They do a rent strike. They put the money in the court register. You’ve got to wait four years, five years, before you can get the money out.”
Amid all this economic uncertainty, Dudley says he’s owed a little relief.
“Those individuals who don’t have income, that should not be the housing provider’s responsibility,” he says.
“That should be the city’s responsibility. They don’t tell Safeway, ‘Hey, reduce the food price.’ They say, ‘Hey, here’s some food stamps.’”
5:28 pm
With the 'guarantee' of a 12% return given with hardship increases, is there a ceiling on return also imposed? Shouldn't there be one? Perhaps the Office of the Rent Administrator should examine whether there is a way to 'trade' the hardship increase in rents in exchange for a limit on the profits that will be generated to the owners [such as Mr. Dudley] when the property is sold. Surely something like this could help to fund the Housing Trust Fund. While it might not be a short term tit-for-tat, at least there is some public benefit in exchange for the assurance that ppl like Mr. Dudley don't crash and burn.
Please someone, tell me why something along this order might not be feasible going forward.
6:53 pm
I hope that the tenats do go on a rent strike and for him to go broke .To many Slum lords like him need to be dealt a finacial blow to the head so that when they wake up they have lost and the tenats have WON !
12:19 am
There is a lot of hardship around the country. It's probably not too hard for landlords to show hardship.
4:59 am
A person would have to be half-insane to be a landlord in DC, especially any small-time landlord. The laws and regulations are so strongly tilted in tenants' favor that it's nearly impossible to evict a tenant, even if they're not paying rent and are wrecking the property.
And isn't it amazing how the City Council has hearings on bills that would directly impact thousands of businesses, yet fails to let any of those businesses know about it?
9:15 am
Don't trust landlords. But trust the bureaucrats even less.
How's this for a suggestion: commercial tenants often have a pass-through in their leases, where they pay their share of any real estate tax increases. Why not include such a provision for residential tenants in any rent control law?
If you did, you'd see more screaming about tax hikes, and less wasteful spending by Council. If you're gonna raise taxes on the landlords, you have to give them a chance to recoup that. Otherwise, it's just theft.
And theft is wrong, even if it's from landlords. Even greedly landlords.
11:32 am
12 percent profit is reasonable, because of the responsibilities and complications of ownership. Comparing it to the stock market is nonsense, stocks can be bought and sold in minutes, buying and selling a building takes years. Full disclosure - I am a landlord, and have had very good relations with tenants over more than fifteen years. However, the sense of entitlement that some tenants have is incredible. They live in an apartment for more than 3 or 4 years and think they have a right to a certain price of rent.
4:10 am
Look around all the world everywhere and every people must face the high price of the apartment.
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12:41 pm
I don't think the tenants would mind increases if they had something to show for the rent increase, Living with rats and roaches and leaky faucets etc. Does not warrant you claiming hardship. Dudley has had his buildings for years and has done nothing to improve them until he got hit with code violations recently. He's a slum lord. If I'm paying my rent and I tell you have a problem in my apartment it should be taken care of not dismissed because your about to sell it and don't want to put the money into it to fix it.
12:53 pm
I am a little conflicted. I definitely think it is unfair how some landlords maintain there properties to the point where they could be considered inhabitable by most people. I also am a little inclined to agree with Mr. Dudely in the sense that it really is not fair that he has a tenant paying 400 a month and he is not at least able to raise that rent. The cost of utilities and property taxes go up on an annual basis and I can see how one could evenutally be operating at a lost in order to maintain a building in a low income neighborhood.
I think that the guy is right in the sense that the city should bear some of the responsibility for assisting landlords who rent to low income tenants. Yes I know that is the purpose of section 8 vouchers. But something else should be done, perhaps a tax credit or reduction that would allow a landlord to compensate for rising taxes when the bulk of his/her tenants are low income and do not provide enough income to cover the taxes.
But I will say I am sick of landlords leaving tenants in unmaintained properties and DCRA does need to do a much better job of curtailing this practice in DC.
1:58 pm
I have had the pleasure of living at Mr. Dudley's property. He was an excellent landlord. Whenever I needed work done they came quickly to do the repairs. He was by no means a Slumlord. Now as far as some of the residents, they did not keep their apartments clean and wondered why they had roaches??? They would not control their children and allowed them to tear up the place and now the want to call him a Slumlord???
2:40 pm
If we would work together and stop damaging the property were we live the landlord would have a better chance of repairing the things that needs to be fix. Their are some tenants that damage property on a timely bases. They need to keep there apts and houses clean. Pick up paper that is on the ground. Have our children be kine to one another and our senior citizens. Mortages and taxes are going up every year it is hard, There is not on e thing that is FREE on this earth. We all are having a hard time with the increases, so keep praying and beliving that it will get better some day.
3:01 pm
The joys of rent control. Anytime you have artificial distortions of market forces (i.e. government interference in pricing decisions), you'll have unintended consequences.
Both tenants and landlord have good points in this dispute.
9:18 pm
@ Ms.TenAnt: how much does the Dudley pay you to lie on his behalf
2:48 pm
Being a rental property owner in DC is very difficult. One of the problems is that the tenants have been given a free ride for so long, that they believe that they are entitled to be taken care of by the landlord. Its not the landlords responsibility to take care of the tenants, that is the governments responsibility.
How can you provide housing for someone for $400 p/m. That's only $13 a day. You can hardly get a good meal for that price, much less expect for a landlord to provide you with a place to live. Some of Dudley's tenants act as if he is the only landlord in town. If they don't approve of him or his units, they should move.
Dudley deserves to make a profit, because he has all of the headaches and liability of ownership. Pepco, Wash Gas, DC Finance and Revenue, Water Dept, Insurance Co., Contractors, Home Depot, all go up on their prices at will. The landlord should be able to increase rents to cover his costs. Some tenants want something for nothing.